Supply chain visibility – defined as the IT-supported visualisation and monitoring of all process workflows within the supply chain, from the supplier to the end customer – ranks very high on the agenda of many companies around the world. This is mainly based on the benefits that comprehensive transparency delivers, including enhanced quality of services, which in turn boosts customer satisfaction. Visibility also helps soften the impact of disruptions, keeping down transport and handling costs.
Unfortunately, many businesses have not yet achieved satisfactory levels of supply chain visibility both within and outside of their organisation. The obvious conclusion is that businesses are not really making appropriate headway on this issue despite its high priority. But what are the unique challenges here? Where is visibility particularly important? And how should businesses approach and implement a visibility strategy?
Visibility – the answer to increasing complexity
E-commerce and the ability to compare products and services from around the world have long played a key role in driving change in modern supply chains. Consumers can shop around the clock and expect delivery within just a few hours. This has led to a sharp increase in the number of small parcels with highly individualised “last mile” requirements and a corresponding growth in the number of returns.
Businesses are focusing more on the demanding consumer, making it more crucial than ever for supply chains to maintain and optimise their service levels. Shorter product cycles, more complex products, global procurement, volatile markets, and a growing number of natural disasters present additional challenges for managing a supply chain. In combination, these challenges are amplified and often require new supply chain management strategies and business processes.
The only way to manage such complexity is through comprehensive visibility and IT support throughout the entire supply chain. But the need for information and the interpretation of specific data can vary greatly. An ocean freight forwarder has a completely different perspective on a particular shipment than the transport service provider, who receives the shipment at the central hub and must ensure that both time and resources are used to maximum effect during cross-docking.
The same diversity found in data requirements is reflected in data standards, the scope of data collected, and the semantics of the in-house IT systems used by the various supply chain parties across all industry sectors. To make things even more difficult, these IT tools are non-harmonised, and are typically still designed for a particular company’s internal processes. Direct processing of outside data is either impossible or technically very difficult. The result is information that does not flow easily or seamlessly from one supply chain partner to another.
Supply chain costs
A key dimension of supply chain visibility is the real-time transparency of ongoing processes, such as the status of a customer order, the scheduling of a picking order, the current location of a container, or the customs clearance status. This kind of information makes it easy to better plan resources and transport capacities, or to consciously select transport modes or partners by cost or lead time. It also yields specific benefits in the form of fewer empty runs and shorter wait times, which is very important, especially in light of an EU study that found empty runs accounting for over one-fifth of road haulage kilometres on Europe’s roads. The study’s authors also assumed, even without hard data, that many of the remaining vehicles also have significant unused capacity. In addition, visibility across operating processes helps businesses turn inventory over faster through cross-docking and optimise goods receipt processes to meet available resources. Simplified customs procedures can also greatly streamline handling, but such privileges are subject to various requirements, including high consistency of data.
In addition to operational visibility, cost transparency across the entire supply chain is a critical factor in achieving further savings. Take transport costs, which represent one of the biggest cost factors within the supply chain and have long been the focus of supply chain managers. Those who seek to implement an optimisation strategy should first understand what exactly the cost drivers in their own supply chain are.
Reliable information on past transport volumes and costs are the foundation for organising effective, optimised carrier contracts and service levels. This information can be used to take specific actions, e.g. reassigning certain routes or negotiating more favourable service levels for less critical products. Significant savings can also be realised by monitoring ongoing costs with the help of an automated freight and transport cost verification process, which eliminates the risk of erroneous service charges.
Another very important aspect of supply chain visibility is bringing transparency to the relevant risks in the supply chain and obtaining consistent, complete, and validated data. End-to-end transparency enables a basic understanding of the existing risks and makes it possible to qualify them. But this topic is so multi-faceted that its significance can only be touched upon here. The two core questions are: Where are the greatest risks in the supply chain? How can they be mitigated, and which risks require a proactive response?
According to a 2013 study of the Business Continuity Institute (BCI), 75 percent of the companies surveyed reported that they experienced at least one significant supply chain disruption in the previous year, with damages exceeding one million Euros in 15 percent of cases – without consideration of indirect costs, damage to reputation, etc.
A Deloitte study found that the most common risk events within a company’s own supply chain were interruptions to the procurement, production, and distribution networks. In the extended value chain, the primary risks came from fluctuations in demand, changing customer preferences, and problems with suppliers. The primary external risk events include economic changes, a critical scarcity of resources, geopolitical and security-related events, and natural disasters.
Solution: Focusing on people and IT
Supply chain visibility offers tremendous benefits across several areas and dimensions. But in practice there is a major discrepancy between how important businesses say the topic is and how often they actually implement visibility projects. Businesses still compensate for a lack of visibility by throwing money at the problem: maintaining high levels of safety stock, changing modes of transport, or paying for special trips and overtime. Businesses that already have relatively sophisticated supply chain visibility in place manage more efficient processes and boast higher performance.
Obviously, supply chain visibility is of crucial importance and offers clear benefits in and across a number of areas and organisations. So, how can it be achieved? What are the success factors? The chief prerequisite for successful and sustainable cross-company collaboration in procurement and distribution networks is the need for all parties to exchange data. The main challenge here lies in getting all supply chain participants on board to reliably make the relevant data available. This begins with the overseas supplier who needs to issue a prompt alert if a container misses its ship. It applies to the forklift operator who accidentally drops a package. It also applies to the customs clearance agent when shipments are held up by inspections. And it applies to the truck driver who needs to let everyone know he’s stuck in traffic. The quality of one’s partners and employees is a critical factor that determines whether supply chain managers are empowered to make the right decisions at the right time to ensure compliance with original time frames.
Other important points include technical cooperation and technological sophistication. In practice, many businesses still rely largely on manual processes supported by spreadsheets, sharing data and information by e-mail or Microsoft SharePoint. This is a highly inefficient method that is quickly rendered inadequate as supply chains grow more complex and the number of parties increases. How should employees organise their data, and how can the correct transmission to external partners be ensured? How can IT systems process relevant information and support decision makers with the right information at the right time?
One recipe for success lies in eliminating the need for manual – and especially repeated – data entry. This means, for example, using sensors not only in transport vehicles and warehouses but also on associated pallets, shipments, and the products themselves. The core technology required for end-to-end collection and electronic analysis of the relevant information is already available and established today: touch-free identification via RFID, geolocation via GPS or GSM, ubiquitous computing, voice recognition, and digital image processing.
The actual challenge for IT systems lies in using all this data correctly: mapping all the resources, capacities, inventory, and processes in the supply chain and using EDI standards to facilitate the quick exchange of information among partners. This requires nothing less than importing data from all the various sources and formats and creating seamless connections across multiple levels for all relevant business transactions. These business transactions are represented by data objects such as inventory data, sales and purchase order data, sales and production planning data, and data from physical material flow elements such as load carriers, shipments, and means of transport. “Events” form another essential element that documents every step in a process or every change in status. Sophisticated alerting systems are responsible for monitoring events and milestones, and initiating notifications and other actions if deviations exceed previously planned and defined tolerances.
It is now possible to find many providers of visibility software, which typically features an online platform architecture. Such solutions serve as hubs for the relevant data of all parties involved in the supply chain and can process and tailor the data to each specific target group.
Summary: Supply chain visibility – the unfulfilled promise
Supply chain visibility is still an unfulfilled promise in many businesses. However, companies agree on the necessities and benefits of a comprehensive solution, and there is also broad consensus on the fact that powerful systems are available, affordable, and accessible through cloud-based services.
But their implementation often fails because businesses do not seek or take an integrated approach to such solutions. Extended visibility solutions can only deliver their full benefit if all supply chain partners are integrated and take an active part. The processes and data required to deliver visibility is based on cross-functional knowledge transfer and information sharing, both within a company and between partners. This is the only way for visibility to deliver on its promise of helping businesses adapt to changing conditions, increase performance, lower costs, and establish sustainable competitiveness.